The S&P 500 fell 1.3% to 1,818.04 at 3:32 p.m. in New York. The Dow Jones Industrial Average declined 179.78 points, or 1.1%, to 16,257.27, its lowest level of the year. Trading in S&P 500 stocks was 25% above the 30-day average at this time of day.

“Sentiment is extremely optimistic and that’s a negative for stocks,” Bruce Bittles, chief investment strategist at RW Baird & Co., said by phone from Sarasota, Florida. His firm oversees $105 billion. “That means for the short term they’re fully invested. Stocks have entered the new year overbought and over-believed and until we digest that, we’re likely to stay in this range.”

The S&P 500 has dropped 1.6% so far in 2014, despite last week’s 0.6% advance. It ended last year at a record level, having climbed 30% for its biggest annual rally since 1997.

‘Lofty’ Valuations

Valuation for the S&P 500 is “lofty by almost any measure,” Goldman Sachs analysts wrote in a note Jan. 10. Further price-to-earnings expansion will be difficult to achieve, according to the note.

The benchmark index trades at 15.4 times the estimated earnings of its members, more than the average multiple of 14.1 over the last five years, data compiled by Bloomberg show. The gauge ended 2013 at its highest valuation since the end of 2009.

“The way to think about the market is the level of earnings and the multiple which should be applied to that earnings growth,” David Kostin, chief U.S. equity strategist at Goldman Sachs, said today on Bloomberg Television. “Those really are the fundamental drivers of the level of U.S. equity markets this year.”

JPMorgan Chase & Co., Bank of America Corp., Goldman Sachs, and Citigroup Inc. are among 29 members of the S&P 500 to report quarterly results this week. Earnings for companies in the index probably climbed 4.9% on average in the fourth quarter, while sales increased 1.8%, according to analyst estimates compiled by Bloomberg.